Finland's Euro-Skeptics Poised to Form Government Following Election Upset

By Kati Pohjanpalo -
Apr 18, 2011

Finland’s euro-skeptic bloc is
poised to enter a government with the pro-Europe National
Coalition led by Finance Minister Jyrki Katainen after voters
used yesterday’s election to protest against funding bailouts.

The True Finns, whose leader Timo Soini says taxpayers
shouldn’t have helped rescue Greece or Ireland, surged almost 15
points to 19 percent, the Justice Ministry said. Katainen’s
group won 20.4 percent to become Finland’s biggest party for the
first time. Prime Minister Mari Kiviniemi’s Center Party got
15.8 percent and the Social Democrats, which also opposed
bailouts for the two countries, won 19.1 percent. Kiviniemi will
lead her party in opposition after its “huge defeat,” she told
broadcaster YLE.

“They couldn’t leave the True Finns out of government
after this landslide,” said Tuomo Martikainen, professor
emeritus in political science at the University of Helsinki, by
phone. “It would be making a mockery of democracy.”

The election results, which come 11 days after Portugal
became the third euro member to seek a bailout, threaten to
disrupt efforts to push through Europe’s crisis-handling
measures. Should AAA rated Finland withdraw its support,
Europe’s principle of solidarity “would have failed,” said
Frank Engels, an economist at Barclays Capital, in an April 14
note. Any steps need the approval of all 17 euro members.

Losing Face

“Finland’s government will demand new negotiations over
the package or block it,” Martikainen said. The True Finns and
the Social Democrats “would lose face in Finland if they just
approved the financial aid,” he said.

Katainen has said he’ll only work with parties that support
the bloc’s rescue tools. “Finland has always been a responsible
European Union country,” he told supporters. “I’m convinced
the new government, whoever is in it, will want to continue this
policy.” The True Finns will seek a majority that allows them
to block the region’s bailout mechanism, Soini has said.

“Now we’ll renegotiate. Our money shouldn’t be thrown into
mechanisms that don’t work,” Soini told YLE today. “We won’t
dictate the terms for the whole of Europe, but we will insist on
holding onto Finland’s decision-making powers and money. The
Finnish cow should be milked in Finland and the milk shouldn’t
be sent abroad in charity.”

The new parliament convenes on April 26. The legislature
then selects a prime minister, traditionally the leader of the
biggest party, who heads talks to form a government. Katainen
told broadcaster YLE that a coalition with the True Finns and
Social Democrats is “very possible.”

Market Anxiety

A new government is due to be appointed on May 19,
according to a preliminary plan agreed by the parties’
parliamentary heads.

“If Finland doesn’t ratify the package, either Portugal
won’t pay its debts or some other package must be drawn up,”
said Pasi Kuoppamaeki, chief economist at Sampo Bank, a unit of
Danske Bank A/S. “I’m afraid this will cause some anxiety in
the financial markets.”

Portuguese government bonds fell today, pushing the 10-year
yield as much as 28 basis points higher to 9.28 percent, the
most since at least 1997. The yield was up 8 basis points at
9.07 percent as of 3:10 p.m. in London. The euro lost 1.2
percent against the dollar, declining for a second day.

Soini’s campaign to protect taxpayers from rules made in
Brussels has won support from voters who endured their most
recent recession without blowing the budget. The Social
Democrats have argued Europe’s rescue measures don’t push enough
of the cost onto investors.

Finnish Hardship

“The result is very strong,” Soini told YLE. “We’ve been
heading in this direction for years.”

Many Finns remember how the country worked its way through
its 1990s recession, triggered by a banking meltdown that
coincided with an export slump as the Soviet Union collapsed.
That downturn sent unemployment to 19.9 percent in May 1994,
from 2.1 percent in 1990.

“People wonder why we should help,” said Tiina Helenius,
Helsinki-based chief economist at Svenska Handelsbanken AB.
“People feel we each must face our hardships and do the work
needed to recover.”

Finland has since emerged as one of the euro region’s
fastest-growing economies. Gross domestic product expanded an
annual 5.2 percent in the fourth quarter and Finland kept its
budget deficit within the bloc’s 3 percent threshold even as its
economy contracted 8.2 percent in 2009. Its deficit will narrow
to 1.6 percent of the economy this year, versus an EU average of
5.1 percent, the European Commission estimates.

Bailout Facility

Any decision on how to bring the 440 billion-euro ($634
billion) European Financial Stability Facility to its full
capacity, which euro-area leaders want done by June, would
require AAA rated countries such as Finland to shoulder an
above-average burden.

“It’s hard to see that the National Coalition would be in
a government that would block the bailout,” Kuoppamaeki at
Sampo Bank said. “If the National Coalition forms the
government, the bailouts will be approved.” The True Finns
“have a moral right to participate in the talks to form the
government, but other parties don’t need to give in on all of
their demands,” he said.

Portugal has announced it may raise as much as 5.5 billion
euros issuing bills through June, including a planned April 20
sale of securities due July and November. The country had a 4.2
billion-euro fixed rate bond mature on April 15, and has a 4.9
billion-euro note coming due in June, according to the
Portuguese Debt Agency.

“Portugal’s situation is getting very tough,” Kuoppamaeki
said. “They have large loans maturing in June, so something has
to be done.”